Read how to use Nexus Mutual to buy insurance for DeFi smart contracts
Editor's Note: This article comes fromGolden Finance, reprinted by Odaily with authorization.
Editor's Note: This article comes from
Golden Finance
Golden Finance
, reprinted by Odaily with authorization.
DeFi is in full swing. But don't forget about the security risks of smart contracts.
Vitalik Buterin, the founder of Ethereum, also publicly stated recently that DeFi is not bad, but it is not a place that should advocate that many ordinary people invest their life savings in it. An important problem is that many people underestimate the risks of smart contracts. Its interest rate is much higher than that of traditional bank accounts, which means that DeFi products are also much more risky and have a much higher chance of "crashing".
Hugh Karp, the founder of Nexus Mutual, recently posted an article explaining how to use Nexus Mutual to purchase DeFi insurance.
If you’ve been actively participating in the Yield Farming craze, or simply using any kind of DeFi protocol, it might make sense to consider protecting yourself from potential vulnerabilities.
Smart contracts have had major mishaps in the past. While overall security practices are improving, you can never be sure that a smart contract will always function as intended.
In this article I will show you how to buy Smart Contract Cover at Nexus Mutual to cover the risk of your Solidity code failing, and how easy it is.
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Nexus Mutual is a kind of people-powered insurance. Members join a DAO and share risks. It takes the very old concept of mutual insurance and uses token incentives to run it in a non-custodial fashion.
Nexus Mutual's first product is the Smart Contract Cover, which provides claims in cases where "the code accidentally results in significant financial loss."
The product was inspired by the DAO hack or the Parity multisig wallet incident of 2016/17. Members vote on claims using a tested staking procedure.
The bZx hack incident in early 2020 saw Nexus Mutual complete its first claim.
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Know your insurance needs
The first step is to understand which smart contract system you are using and what protections you need to buy.
Nexus Mutual provides protection on a system basis, which means you can buy protection on products like Compound or MakerDAO or Uniswap or Curve. If you are interacting with multiple protocols, or are using protocols that build on each other, the scope of the purchase needs to fully cover each protocol.
When getting a quote, you will need to choose which currency (ETH or DAI) to purchase the insurance in, and how many days the insurance will last.
Therefore, you need to know:
How much are you investing in each system? and
How long do you plan to use it.
Smart Contract CoverFor example, if you are lending 5000 USDC on Compound, then you might want to purchase Nexus Mutual Insurance worth 5000 DAI. If something goes wrong with Compound, you will be paid out in DAI.
Alternatively, if you are providing cUSDC to a Balancer pool, you may wish to purchase both Compound and Balancer insurance for more comprehensive coverage.
What insurance is not provided
What is provided is insurance against the technical risk (Solidity code) of smart contract failure.
Currently, it does not provide insurance for things like oracle failures, governance attacks, flash loan market manipulation, economic/incentive failures, or anything else outside of smart contracts.
The Nexus Mutual team is working on expanding coverage, so keep an eye out for more comprehensive coverage in the future.
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Become a Nexus Mutual member
If you're not a Nexus Mutual member, you'll need to sign up and become a member to get coverage. However, anyone can inquire and receive a quote at any time.
During times when gas fees are high (which is pretty much all the time now!), it's best to complete the membership separately and then come back for a quote.
KYC requires identification, such as a driver's license or passport, and is usually completed within minutes, but it can take up to 24 hours for the team to manually review it.
During the registration process, The Mutual will generate an ETH address for you as your Nexus Mutual member address. This is the address you must use to interact with the Nexus Mutual system, and there is only one address per person/entity.
You can switch your ETH address afterwards, but this only works if you don't have any valid insurance.
As part of KYC, you may need to remove the blocker or any ad blockers in order for our 3rd party KYC provider systems to work properly, which can be reinstated once KYC is complete.
secondary titleapp.nexusmutual.ioHow to Buy Insurance Using Nexus Mutual
Once you're a member and understand what your coverage is, buying insurance is relatively simple.
The first step is to obtain a premium quote:
1. Go to
. Connect your MetaMask and click on the "Buy Insurance" option on the sidebar.
2. Select the smart contract that needs to be protected from the list of insurance you want to buy.
3. Enter the insurance amount and currency. You can choose ETH or DAI
5. Get premium quotes. Getting a premium quote does not require a transaction, so you can test different options multiple times. Offers are valid for 60 minutes. If you are satisfied with the quote, click Continue.
The picture above shows Nexus Mutual’s 365-day premium for 10 ETH insured insurance on Compound v2
6. After the premium is generated, you can continue to purchase. You must accept the disclaimer and approve the transfer of NXM tokens if you do not have one.”7. Sign the Metamask transaction. Once confirmed, congratulations! Nexus Mutual officially provides you with this smart contract insurance.
In the event of a theft, you can always access it from the Nexus Mutual app's "Manage Cover
Summarize
Partially submit a claim. This will create a workflow for Nexus Mutual's claims evaluators to vote on. Submit a claim to deposit a small amount of NXM to prevent spam claims, but when buying insurance, you already have the NXM you need, so you don't need to take any additional steps.
